Understanding PEOs: What They Are and When Your Business Might Need One

What Exactly is a PEO and How Does it Function?

Managing human resources (HR) can be overwhelming, especially for small to mid-sized enterprises or new start-ups. Fortunately, numerous HR platforms and partners are available to streamline these processes. So, what exactly is a PEO? Think of a PEO as an outsourced HR department. For small and medium-sized businesses, managing HR tasks can consume a significant amount of time. As these companies grow, their internal teams might struggle to manage the increased workload. To alleviate this, businesses can outsource complex HR and payroll tasks to a PEO.

Before you search for the nearest PEO, it is essential to understand the services a PEO provides—and what it does not. This article explores the intricacies of PEOs and discusses whether an EOR might be more suitable for businesses aiming to expand internationally.

Is a PEO the Right Choice for Your Company?

Before considering your options, it is important to understand that there are two main ways to expand internationally. One viable option is a Professional Employer Organization (PEO), which is particularly beneficial for companies with a local legal entity. On the other hand, if you are hiring internationally, an Employer of Record (EOR) might be the perfect solution to navigate the complexities of global HR. Compared to a PEO, an EOR is more suitable for employers expanding internationally because the EOR acts as the legal employer, ensuring compliance with local regulations.

Distinguishing Between a PEO and a Payroll Company

It’s easy to confuse a PEO with a payroll services company, but there’s a significant difference between these services. A payroll services company manages your company’s payroll administration and ensures compliance with local tax laws. In contrast, a PEO provides payroll and compliance assistance along with other HR services.

How Does a PEO Operate?

PEOs function under a co-employment model. This is a contractual relationship where a company and a PEO share certain employment responsibilities that would typically be handled solely by the company’s internal HR team. In this arrangement, both you and the PEO employ your workers simultaneously. The PEO manages payroll and benefits, but your employees remain your staff on paper.

However, this differs from using an EOR for HR outsourcing in a foreign country. While some HR professionals use the terms interchangeably, PEOs and EORs are not the same. An EOR acts as the legal employer, meaning your employees technically work for the EOR for compliance reasons, although in practice, they work for you.

What Services Do PEOs Provide?

Smaller businesses often lack the resources to manage global HR complexities on their own. PEOs take on many employer responsibilities, allowing companies to enhance employee experiences in various ways:

  • Payroll: Reliable payroll services ensure that employees are paid on time, reducing stress for company leaders.
  • Benefits: PEOs handle a wide range of employee benefits and usually have access to better networks, offering superior health insurance and retirement plans.
  • Taxes: With the rise of remote work, PEOs help manage tax compliance across different locations, ensuring timely payroll tax payments.
  • Legal Compliance: PEOs assist with various compliance aspects, from worker classification to adherence to local labour regulations.

Read also: Hiring and Paying Remote Workers by using PEO/EOR services in Singapore

Advantages of Using a PEO

For small and medium-sized businesses, PEOs can save money and reduce administrative burdens by taking over many HR functions. PEOs also provide access to a broader range of insurance and financial products than businesses might find independently. They can spread risk across a larger pool of employees and facilitate rapid scaling by standardising processes and ensuring legal compliance.

When Should You Consider an EOR Instead?

When expanding internationally, businesses often face a choice: establish themselves physically in new countries by setting up international entities, or hire foreign employees through an EOR. While setting up international entities can be costly and time-consuming, an EOR provides a faster, safer, and more cost-effective alternative. EORs handle hiring, payroll, tax compliance, benefits administration, and employment records, ensuring compliance with local laws.

If you plan to expand abroad but do not establish a local entity, you cannot work with a PEO because a PEO requires a local entity for a co-employment relationship. In such cases, an EOR is a more suitable alternative.

Read More: What is PEO and How Does it Work Compared to EOR?

EOR Services

How Links Can Assist with Your International Expansion

If you’re a small or medium-sized business owner needing HR assistance, partnering with a PEO is worth considering. For international expansion, an EOR might offer greater flexibility. Links provides both global payroll and HRIS services, making it easy to manage your workforce worldwide. We also offer EOR services to help you focus on expansion without administrative and compliance worries.

Whatever your global HR needs, Links has you covered, helping you stay competitive and unlock new growth opportunities. Contact us today—our comprehensive line of services, including payroll outsourcing, PEO, visa application, outplacement, and more, is designed to meet all your business needs. Speak to one of our HR experts to learn how Links can help you find the best approach for your company.

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